Understand the profit and loss statement

1. 1
Profit and Loss…Do I Really
Have A Choice?
Steven Sunder, BS
Sunder Vision Solutions

2. 2
Agenda
The most important goal
of financial management
is to “maximize the
highest possible profit
for the practice” while
providing superior
medical eye care to your
patients.
Objective
Understanding the Profit
& Loss statement
Practice Operating Ratios
Optometric Industry
Benchmarks & Your
Practice Ratios
Conclusion
Q & A
Terms

3. 3
Objective
1. How do I read this thing?
2. How do I measure my financial success?
3. How am I doing?
4. How do I compare to my peers/industry?

4. 4

5. 5
Income/Profit and Loss Statement
An income statement, otherwise known
as a profit and loss, is a financial
statement summarizing all the revenue
and expense transactions that result in a
profit or loss over a period of time.

6. 6
Components of an Income Statement
Practice Revenue
Cost of Goods Sold
Gross Profit/Margin
Operating Expenses
Net Margin

7. 7
Components of an Income Statement
Practice Revenue
Cost of Goods Sold
Operating Expenses
Net Margin
Gross Profit/Margin

8. 8
Components of an Income Statement
Practice A Statement of Earnings
For The 4 Months Ending April 30, 20__
Actual Budgeted Variance Variance
YTD YTD $'s %
Revenue:
Gross Charges - Optometry 240,783 211,499 29,284 14%
Gross Charges - Optical 166,578 149,973 16,605 11%
Patient Refunds (510) (573) 63 -11%
NSF Checks (125) (96) (29) 31%
Adjustments (115,082) (102,922) (12,160) 12%
291,644 257,882 33,762 13%

9. 9
Components of an Income Statement
Practice Revenue
Cost of Goods Sold
Operating Expenses
Net Margin
Gross Profit/Margin

10. 10
Components of an Income Statement
Cost of Sales: Actual Budgeted Variance Variance
Purchases - Frames 18,504 12,000 (6,504) -54%
Purchases - Lenses 790 122 (668) -549%
Purchases - Contact Lenses 0 343 343 100%
Lab Costs 41,268 34,000 (7,268) -21%
Lab Wages 7,040 7,040 0 0%
Lab Wage-Taxes and Insurance 1,830 0 (1,830) #DIV/0!
Lab Equipment 2,000 0 (2,000) #DIV/0!
Lab Supplies 1,400 0 (1,400) #DIV/0!
72,832 53,505 (19,327) -36%
Does an “in-house”
lab truly increase
profit?

11. 11
Components of an Income Statement
Practice Revenue
Cost of Goods Sold
Operating Expenses
Net Margin
Gross Profit/Margin

12. 12
Income/Profit and Loss Statement
The gross margin on sales minus the
total operating expenses provides the
net income on operations (pretax).

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Components of an Income Statement
Actual Budgeted Variance Variance
YTD YTD $'s %
Revenue:
291,644 257,882 33,762 13%
Cost of sales:
72,832 53,505 (19,327) -36%
Gross profit 218,812 204,377 (14,435) -7%
Practice A Statement of Earnings
For The 4 Months Ending April 30, 20__
Would Frame
Board
Management
Increase Gross
Profit?

14. 15
Components of an Income Statement
Practice Revenue
Cost of Goods Sold
Operating Expenses
Net Margin
Gross Profit/Margin

15. 16
Components of an Income and Profit & Loss
Statements
Costs and expenses: Actual Budgeted Variance Variance
Comp. 54,490 53,756 (734) -1%
Wages 42,786 47,129 4,343 9%
Advertising 1,848 2,000 152 8%
Medical Supplies 1,110 1,399 288 21%
Office Supplies 2,486 1,910 (576) -30%
Rent - Building 6,843 7,333 491 7%
Rent - Equipment 1,781 2,019 238 12%
Repairs & Maint. - Building 2,709 2,837 128 5%
Utilities 709 821 112 14%
144,541 145,091 550 0%

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Income/Profit and Loss Statement
Operating expenses include fixed
and variable expenses.

17. 18
Profit & Loss Statement
The Profit and Loss Statement shows
how well your practice buys and sells
inventory (or services) to make a profit.

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Profit & Loss Statement
7/22/04 Previous balance $435.99 $435.99
1033 7/26/04 Groceries $123.78 $312.21
8/1/04 Deposit $3,000.00 $3,312.21
1034 8/2/04 Dry cleaner $10.75 $3,301.46
1035 8/9/04 Car payment $450.00 $2,851.46
1036 8/10/04 House payment $1,350.00 $1,501.46
Check Register
Number Date Description of transaction Debit (-) Credit (+) Balance

19. 20
Using Income and Profit & Loss Statements
for Feedback
You use an income/profit and loss
statement to track revenues and expenses
so that you can determine the operating
performance of your business over a
period of time.

20. 21
Components of an Income and Profit &
Loss Statements
Examination Fee (92004): $89.00
TPA Reimbursement: $45.00
Net Revenue to Practice: $45.00
Practice “Write Off”: $44.00
Gross Profit Margin: 50.5%

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Components of an Income and Profit &
Loss Statements

22. 23
Components of an Income and Profit &
Loss Statements
OPPORTUNITY COST: The amount of
income that would result from the best
available alternative to a proposed use of
cash or its equivalent. In other words, it
represents the forgoing of possible income
associated with a lost opportunity.

23. 24
Components of an Income and Profit &
Loss Statements
• Controllable Expenses
• Fixed Expenses
• Miscellaneous

24. 25
Components of an Income and Profit & Loss
Statements
Costs and expenses: Actual Budgeted Variance Variance
Comp. 54,490 53,756 (734) -1%
Wages 42,786 47,129 4,343 9%
Advertising 1,848 2,000 152 8%
Medical Supplies 1,110 1,399 288 21%
Office Supplies 2,486 1,910 (576) -30%
Rent - Building 6,843 7,333 491 7%
Rent - Equipment 1,781 2,019 238 12%
Repairs & Maint. - Building 2,709 2,837 128 5%
Utilities 709 821 112 14%
144,541 145,091 550 0%

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Components of an Income and Profit & Loss
Statements
Cost ofsales: Actual Budgeted Variance Variance
72,832 53,505 (19,327) -36%
Grossprofit 218,812 204,377 (14,435) -7%
Costsandexpenses:
144,541 145,091 550 0%
Earnings(loss)from operations 74,271 59,286 14,985 25%

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Components of an Income and Profit & Loss
Statements
Actual Budgeted Variance Variance
YTD YTD $'s %
Cost of sales:
72,832 53,505 (19,327) -36%
Gross profit 218,812 204,377 (14,435) -7%
Costs and expenses:
144,541 145,091 550 0%
Earnings (loss) from operations 74,271 59,286 14,985 25%
Other income and expenses:
Interest (436) (436) 0 0%
(436) (436) 0 0%
Earnings (loss) before income taxes 73,835 58,850 14,985 25%
Provision for income taxes:
TBD TBD TBD 0%
Practice A Statement of Earnings
For The 4 Months Ending April 30, 20__

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Components of an Income and Profit & Loss
Statements
Actual Budgeted Variance Variance
YTD YTD $'s %
Cost of sales:
72,832 53,505 (19,327) -36%
Gross profit 218,812 204,377 (14,435) -7%
Costs and expenses:
144,541 145,091 550 0%
Earnings (loss) from operations 74,271 59,286 14,985 25%
Other income and expenses:
Interest (436) (436) 0 0%
(436) (436) 0 0%
Earnings (loss) before income taxes 73,835 58,850 14,985 25%
Provision for income taxes:
TBD TBD TBD 0%
Net earnings (loss) for period 73,835 58,850 14,985 25%
Practice A Statement of Earnings
For The 4 Months Ending April 30, 20__

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Using the Income and Profit & Loss
Statements for Feedback
How do you know if your practice suffers from
“practicea inefficoccus,” also known as practice
inefficiency? Would you like to make more
money? If so, your practice must become efficient
and productive.
To evaluate just how efficient your practice is, you
will need to measure three criteria:
1. Your practice history
2. Your practice ratios
3. Optometric industry benchmarks for
comparison

29. 30
Using the Income and Profit & Loss
Statements for Feedback
Creating a profit and loss statement on a
regular basis will provide you with a true
cash picture of your practice’s profitability
and help you decide where to make changes
in the budget, collections policies or
spending habits.

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Using the Income and Profit & Loss
Statements for Feedback
“The foundation of effective leadership is
thinking through the organization’s
difference, defining it and establishing it,
clearly and visibly.”

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Practice Operational Ratios
Practice Ratios:
When evaluating the financial “health” of
your practice, practice ratios are used
to measure your your financial state.

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Where is the revenue coming from?
Practice Operational Ratios
Actual Budgeted Variance Variance
YTD YTD $'s %
Revenue:
Gross Charges - Optometry 240,783 211,499 29,284 14% 59.11%
Gross Charges - Optical 166,578 149,973 16,605 11% 40.89%
291,644 257,882 33,762 13% NET REVENUE
Practice A Statement of Earnings
For the 4 Months Ending April 30, 20__

33. 34
What are my cost of goods sold and gross profit margin?
Practice Operational Ratios
Actual Budgeted Variance Variance
YTD YTD $'s %
Revenue:
Gross Charges - Optometry 240,783 211,499 29,284 14% 59.11%
Gross Charges - Optical 166,578 149,973 16,605 11% 40.89%
291,644 257,882 33,762 13% NET REVENUE
Cost of sales:
72,832 53,505 (19,327) -36% 43.72% COST OF GOODS SOLD
Gross profit 218,812 204,377 (14,435) -7% 75.03% GROSS PROFIT MARGIN
Practice A Statement of Earnings
For the 4 Months Ending April 30, 20__

34. 35
What are my practice operational expenses?
Practice Operational Ratios
Actual Budgeted Variance Variance
YTD YTD $'s %
Costs and expenses:
Comp. 54,490 53,756 (734) -1% 19.62%
Wages 42,786 47,129 4,343 9% 16.44%
Advertising 1,848 2,000 152 8% 0.63%
Rent - Building 6,843 7,333 491 7% 2.35%
Rent - Equipment 1,781 2,019 238 12% 1.01%
Utilities 709 821 112 14% 9.51%
144,541 145,091 550 0% 49.56%
Practice A Statement of Earnings
For the 4 Months Ending April 30, 20__

35. 36
What is my practice net margin?
Practice Operational Ratios
Actual Budgeted Variance Variance
YTD YTD $'s %
Revenue:
291,644 257,882 33,762 13% NET REVENUE
Cost of sales:
72,832 53,505 (19,327) -36% 43.72% COST OF GOODS SOLD
Gross profit 218,812 204,377 (14,435) -7% 75.03% GROSS PROFIT MARGIN
Costs and expenses:
144,541 145,091 550 0% 49.56% AGGREGATE PRACTICE EXPENSES
Earnings (loss) from operations 74,271 59,286 14,985 25% 25.47% NET MARGIN RETURN
Practice A Statement of Earnings
For the 4 Months Ending April 30, 20__

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Practice Operational Ratios
Tracking and controlling your practice ratios
is a very simple yet a valuable tool used in
evaluating your practice for operational
efficiency opportunities.
Controlling practice ratios = more $ in your
savings account

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Optometric Industry Benchmarks
Should you care how your practice
measures against your peers?

38. 39
Optometric Industry Benchmarks
The 11 Key Industry Benchmarks
Optometric Industry Benchmark Analysis
As a Rate to Net Revenue
Revenue Industry
Professional: 32.00%
Optical: 46.00%
Contacts: 22.00%
Total 100.00%
Cost of Goods Sold 27.00%
Expenses
Compensation
Staff Optometrist: 21.00%
Support Staff: 18.00%
Facility: 8.00%
Marketing & Advertising: 4.00%
Equipment: 5.00%
General: 6.00%
Net Revenue 30.00%

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Optometric Industry Benchmarks
Practice A Industry Benchmark Analysis
Optometric Industry Benchmark Analysis
As a Rate to Net Revenue
Revenue Industry Practice A Variance +/-
Professional: 32.00% 59.11% 27.11%
Optical: 46.00% 40.89% -5.11%
Contacts: 22.00% - -
Total 100.00% 100.00% -
Cost of Goods Sold 27.00% 24.97% -2.03%
Expenses
Compensation
Staff Optometrist: 21.00% 19.62% -1.38%
Support Staff: 18.00% 16.44% -1.56%
Facility: 8.00% 2.35% -5.65%
Marketing & Advertising: 4.00% 0.63% -3.37%
Equipment: 5.00% 1.01% -3.99%
General: 6.00% 9.51% 3.51%
Net Revenue 30.00% 25.47% -4.53%

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41. 42
Components of an Income and Profit &
Loss Statements
Labor Cost Initiatives
Determine the costs to your practice for:
1. Manual Confirmation Calls
2. Hard Copy Recalls
3. Frame Board Management System
4. Chair Costs
After determining what your current costs are
of these processes, evaluate alternatives to
increase net margin/ net profit.

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Optometric Industry Benchmarks
You have attained an understanding of the
Profit and Loss Statement, calculating
practice ratios and comparing to the
optometric industry benchmarks, so what is
the next step in evaluating your practice
operational efficiencies?

43. 44
Optometric Industry Benchmarks
Questions to ask yourself are:
• What are the total number of exams generated?
• How much revenue do I generate per hour?
• How do I increase my Gross Profit?
• How do I reduce my laboratory and frame
expense?
• How much revenue does my support staff generate
per hour?
• What is my practice revenue per square foot?
• What is my frame inventory turnover rate?
• Would “Frame Board Management” improve
profit margin?

44. 45
Terms
BALANCE SHEET: A financial statement listing the assets, liabilities,
and owner’s equity of a business entity as of a specific date. [How
much am I worth]
BUDGET: A formal written statement of management’s plans for the
future, express in financial terms. [Future projection of revenue,
COG’s, expenses, and net revenue]
CASH FLOW: Earnings before depreciation and amortization. [Amount
of excess cash available at end of month]
COST OF GOODS SOLD: The cost of the manufactured product sold.
Costs include materials purchased from outside suppliers used in the
manufacture of your products, as well as any internal expenses directly
expended in the process such as finishing lab optician.

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Terms
DEPRECIATION: The decrease in usefulness of all practice
assets except land.
EXPENSES: The amount of assets consumed or services used
in the process of earning revenue. [What it costs to run your
practice]
GROSS PROFIT: The excess of net revenue from sales over
the cost of the merchandise sold. [Profit available to pay
expenses]
INVENTORY TURNOVER: The relationship between the
volume of goods sold and inventory, computed by dividing
the cost of goods sold by the average inventory. [How many
times your physical inventory is sold]

46. 47
Terms
NET INCOME: The final figure in the income/profit and
loss statement when revenues exceed expenses. [What you
have left over after paying all practice expenses aka, your
savings account]
OPPORTUNITY COST: The amount of income that would
result from the best available alternative to a proposed use
of cash or its equivalent. In other words, it represents the
forgoing of possible income associated with a lost
opportunity.

47. 48
Contact Steven
Steven Sunder can be contacted at:
C: 602.524.1169
E: steve@sundervisionsolutions.com
W: http://sundervisionsolutions.com/